Are we going to see an end to the Bond market rally?

[donaldprice]

This is a subject that without doubt has been debated over years, but never has it reached so much attention since most world economies started their reckless QE programs and neg interest rates, we have seen extreme negative yields sending the value of bonds skyrocketing to unprecedented levels. However since the ECB statement in early september bond yields, especially the German bund briefly went into positive territory for the first time since July.  The problem seen now is will the price of goverment bonds just keep on rising and see a greater steepening of the yield curve. The irony in the us is that even though their is talk of rising interest rates, investors are still holding on to T-bonds. Is their speculation that the US will cut interest rates, or are they afraid over a global market sell of bonds.

Overall i think the biggest shock and cause in a sell-off on the bond market and huge spikes in bond yields will be cause by the ECB's hopeless monetary program having nothing more to throw at the EU economy in the hope of creating growth and not a rise in interest rates. 

But this is not the only issue. What has happened to China??? Is everything fine over their. Well Fitch does not seem to think so. Its credit bubble has been outpacing GDP growth. And now China's goverment has allowed credit default swaps be used by financial institution's to insure themselves against credit defaults, which one could assume that the level of credit risk is either go up for certain sectors in the economy or credit liquidity is being tightened. Lets hope their is enough margin to pay up if these credit default swaps demand insurance payment.  China's debt to GDP has also increased by 145% since 2008. 

This is why if we do have another major worldwide economic downturn governments will have to agree to a global right-off of debt and deep clean their balance sheets, at present the amount of debt is greater than total money supply. This is why world economies are struggling to bring up inflation. We are living in a deflationary paradigm and this effect will last for as long as debt and slow growth continues to haunt us.